The Fed and AIG Still Give the Market Troubles

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Includes: AIG, BAC, C, DIA, SPY
by: Craig Brown

About a year ago I read an interview of Warren Buffett somewhere where he said he would be happy if all his stock holdings went down 50% due to the possibilities it would create. After all, he is not selling them so what does he care if their face value declines? He also likes to compare his stock holdings to his farm - if it goes down by half in value he pays no attention as he has no intention of selling. He is just living there. Well, he has to be one happy guy these days.

Nonetheless, the sage is saying things that sound a bit less rosy these days, after his company had its biggest loss ever (its second ever I believe) last year. He is now talking about the economy falling off a cliff and when we rebound having to deal with rampant inflation. That is one happy guy alright. He does, however, still have billions to invest so he should "eventually" come out of this smelling like a rose.

Too Big To Let Live

Here is an important piece from the head of the Federal Reserve Bank of Kansas City. He backs nationalization, or pre-privatization, in an orderly fashion and cites examples of how this has worked historically. Some key points he makes are that the efforts to save us to date have been scatter shot, poorly thought out and less than confidence inspiring. I for one hope the "stress tests" under way are a stealth way of preparing to do organized nationalizations.

I particularly like the quote on page 5 from economist Allan Meltzer who said "capitalism without failure is like religion without sin."

AIG -Still A Pain

AIG has Bernanke steaming and most taxpayers as well. Those in the business always had an extreme dislike for the good folks at AIG. Let's just say the company was the 800 pound gorilla and it used its weight to get its way more often than not. If there was a way to game the system, AIG found it. So I have to say those in the industry are not shedding big tears.

Nonetheless, AIG has itself so intertwined financially with so many other entities that it is able to convince the U.S. Government that it is indispensable. And so far, we are biting. Here is a highly confidential document where AIG explains to the government why it has to be saved. This is truly sickening.

Disclosures: None.